Ethernity Net Regulatory News (ENET)

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.

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11 May 2023

ETHERNITY NETWORKS LTD

("Ethernity" or the "Company")

Placing, Broker Option and Trading Update

Ethernity Networks (AIM: ENET.L; OTCQB: ENETF), a leading supplier of data processing semiconductor technology for virtualized networking appliances, is pleased to announce a placing (the "Placing") to raise £750,000 (gross) through the issue of 25,000,000 new ordinary shares of NIS 0.001 each ("Ordinary Shares") at 3p per share (the "Issue Price"). Peterhouse Capital Limited ("Peterhouse") is acting as placing agent to the Placing. The Placing has not been underwritten.

Highlights

· Placing to raise £750,000 through the issue of 25,000,000 new Ordinary Shares (the "Placing Shares") at the Issue Price

· David Levi, Director and CEO, in support of the Placing has subscribed for 833,334 Placing Shares for an aggregate sum of £25,000

· Yosi Albagli, Non-Executive Chairman, in support of the Placing has subscribed for 83,334 Placing Shares for an aggregate sum of £2,500

· Broker option (the "Broker Option") for a further up to 3,333,333 new Ordinary Shares which will raise up to a further £100,000 enabling existing shareholders to participate in the Placing via Peterhouse

· Net proceeds of approximately £713,000 will fund capital equipment purchases to improve testing and integration facilities, to accelerate product shipment and delivery to customers, strengthen the balance sheet, to allow the Company to support the growing number of engagements for its offerings towards successful developments, field deployments, and for general working capital purposes

· Admission of the Placing Shares and the new Ordinary Shares issued pursuant to the Broker Option is expected to occur on or around 18 May 2023

David Levi, CEO, commented: "Ethernity continues to progress its current strategy. At the time of the Company's previous fund raise in January of this year, we were still developing the technology for the new products, being the UEP with support for wireless link bonding, the XGSPON fiber controller technology subject to our $3 million contract signed at the end of 2021 and were at the initial stages of design of the Fiber-To-The-Room ("FTTR") PON devices for our $4.6 million contract as announced in September 2022. Subsequently, we have completed the release of the UEP link bonding system product, XGSPON FPGA code development, and the FTTR FPGA code development, therefore, I believe we have significantly de-risked the investment case as there is a clear line to the target revenues for this year as well as significant further growth potential for 2024 as customer deployments in the latter half of the year move to annualised deployments in 2024. The Placing contributes to the Company being financially positioned for the current requirements and contributes towards the anticipated mass deployment growth on existing contracts, as well as to capitalise on new opportunities."

Trading Update

On 17 January 2023, the Company announced that it was developing the technology for its new products, being: the UEP system product with support for wireless link bonding; the XGSPON FPGA code; and the FTTR FPGA code, as well as being engaged in discussions with prospective customers for the new products.

Since then, the following has been achieved:

· UEP - the Company has completed a release of the first version of the UEP link bonding product as announced on 20 March 2023;

· XGSPON - as announced on 6 March 2023, the XGSPON is complete and the Company has commenced shipment of its ENET5200 Quad XGS-PON System-on-chip (SoC) controller device to the customer in line with the contract terms. Further to this, the Company is in engagement and testing with potential substantial new customers; and

· FTTR controller technology development has been completed and is going out for testing with our customer and their customer in the coming weeks.

The Company has now completed the majority of the required technology development for the first version of the UEP link bonding system product, being the first system product of the Company, as well as the PON (XGSPON and FTTR), and the Company is now moving to monetise the technology from both existing contracts and new contracts from its current discussions and engagements.

2023 outlook

The Company has received an increasing amount of interest in its new products offerings. Therefore, the Directors remain confident of the revenue visibility for 2023 and, based on contracted orders and estimates of the potential orders that are under discussion with prospective customers, the Directors remain of the view that revenues of $9 million for 2023 are achievable, subject to the availability of components and customer production timelines. In line with previous financial years, revenues are expected to remain significantly weighted towards the second half of the year.

Reasons for the Placing and Use of Proceeds

Subsequent to the placing announced in January, the Company has incurred certain previously unanticipated cash outflows in the first quarter of 2023. These have included the Company taking advantage of the opportunity to acquire sophisticated test equipment that would accelerate the time to completion of product testing with customers, as well as an early component delivery that the Company had to take to ensure that it did not lose the components, and various other unanticipated short term working capital requirements.

As Ethernity continues to implement its strategy of becoming a supplier of customised and differentiated solutions and technology, the Placing will contribute towards putting the Company in a stronger position for the next stages of growth from the current contracts towards further successful developments and field deployments.

The net proceeds of the Placing will be applied towards the purchase of quality testing equipment, to order components in advance for the customers' planned system UEP product and other customer orders, as well as to strengthen the balance sheet, and providing additional working capital to allow the Company to support the delivery of recently secured contracts.

Details of the Placing

The Company has resolved to issue 25,000,000 Placing Shares at the Issue Price raising gross proceeds of £750,000.

The Company has entered into an agreement pursuant to which Peterhouse, as agent for the Company, has agreed to use its reasonable endeavours to procure placees for the Placing at the Issue Price. The agreement contains warranties from the Company in favour of Peterhouse in relation to, inter alia, the accuracy of the information contained in the documents relating to the Placing and also certain other matters relating to the Company and its affairs. In addition, the Company has agreed to indemnify Peterhouse in relation to certain liabilities that they may incur in respect of the Placing. The warranties and indemnities are identical to the ones given by the Company as part of the Placing Agreement signed in relation to the 17 January 2023 fundraise.

Peterhouse may terminate the agreement in certain circumstances, including for breach of warranty at any time prior to Admission, if such breach is reasonably considered by Peterhouse to be material in the context of the Placing, and in the event of a force majeure event or material adverse change occurring at any time prior to Admission.

The Placing Shares are being issued pursuant to the Company's existing authorities to issue and allot new Ordinary Shares free of pre-emption rights.

Broker Option

In order to provide qualified Ethernity shareholders ("Existing Shareholders") and other qualified investors with an opportunity to participate on the same basis as the investors in the Placing, the Company has granted Peterhouse a Broker Option over 3,333,333 new Ordinary Shares (or such other number of Ordinary Shares as agreed between the Company and Peterhouse) ("Broker Option Shares"). Full take up of this number of new Ordinary Shares under the Broker Option would raise a further £100,000 for the Company, before expenses.

Existing Shareholders who hold shares in the Company and are on the register of members as at the close of business on 10 May 2023, will be given a priority right to participate in the Broker Option and all orders from such Existing Shareholders will be accepted and processed by Peterhouse, subject to scale-back in the event of over-subscription under the Broker Option. The Company and Peterhouse at their discretion may decide to increase the amount of the Broker Option to meet demand. The Broker Option has not been underwritten. Peterhouse is entitled to participate in the Broker Option as principal.

The Broker Option is exercisable by Peterhouse on more than one occasion, at any time from the time of this announcement to 4.30 p.m. UK time on 12 May 2023, at its absolute discretion, following consultation with the Company. There is no obligation on Peterhouse to exercise the Broker Option or to seek to procure subscribers for the Broker Option. Peterhouse may also, subject to prior consent of the Company, allocate new shares after the time of any initial allocation to any person submitting a bid after that time.

The Broker Option Shares are not being made available to the public and none of the Broker Option Shares are being offered or sold in any jurisdiction where it would be unlawful to do so. No Prospectus will be issued in connection with the Broker Option.

Director dealings

David Levi, CEO, and Yosi Albagli, Non-Executive Chairman have subscribed for 833,334 and 83,334 Placing Shares respectively. On Admission, David Levi's interest in the Company's share capital shall comprise 13,449,065 Ordinary Shares representing approximately 10.42%* of the Company issued share capital as enlarged by issue of the Placing Shares and Yosi Albagli's interest in the Company's share capital shall comprise 130,440 Ordinary Shares, representing approximately 0.10%* of the Company issued share capital as enlarged by issue of the Placing Shares. Further details of David Levi and Yosi Albagli's share purchases are set out in the table at the end of this announcement.

*Percentage calculation excludes the issue of any Ordinary Shares pursuant to the Broker Option

Broker warrant

In connection with the Placing, Peterhouse will be granted warrants to subscribe for 722,500 new Ordinary Shares, exercisable at the Issue Price (the "Broker Warrants"). The Broker Warrants can be exercised for a period of 24 months from the date of Admission.

Admission to trading

The Placing Shares and Broker Option Shares (together, the "New Ordinary Shares") will rank pari passu with the Company's existing Ordinary Shares. Application will be made for the New Ordinary Shares to be admitted to trading on AIM ("Admission") following the closing of the Broker Option and Admission is expected to occur at 8.00 a.m. on or around 18 May 2023.

For further information, please contact:

About Ethernity (www.ethernitynet.com)

Ethernity Networks (AIM: ENET.L OTCQB: ENETF) provides innovative, comprehensive networking and security solutions on programmable hardware for accelerating telco/cloud networks. Ethernity's semiconductor logic offers complete Carrier Ethernet Switch Router data plane processing and control software with a rich set of networking features, robust security, and a wide range of virtual function accelerations to optimize telecommunications networks. Ethernity's complete solutions quickly adapt to customers' changing needs, improving time-to-market, and facilitating the deployment of 5G, edge computing, and NFV.

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